World Energy Monthly Review

Lee Raymond has repeatedly dismissed the notion of peak oil. Whenever the laconic CEO and chairman of Exxon Mobil gets questioned about future oil production, he’s invariably bullish. Just last month, during an interview with Petroleum Intelligence Weekly, he said flatly, “the world is not running out of oil.”

That’s true. The world will always have oil — at a price. But while Raymond contends there are no problems ahead, Exxon Mobil’s own analysts are predicting that non-OPEC producers will hit their peak production in less than five years. This prediction was part of a presentation given to the Scottish Parliament by an Exxon Mobil official last September. The report predicts that “past 2010, the call on OPEC increases rapidly, requiring OPEC to add more than 1 MBD [million barrels per day] of capacity per year. The resources are adequate, and we expect that investments will be made in a timely manner to meet demand.”

This report is important for three reasons.

First, it’s confirmation by one of the world’s biggest and most conservative corporations that the global energy business – and the cash that comes with it — will increasingly be controlled by the (predominantly Muslim) OPEC countries. And that shift has tremendous geopolitical implications – not just for the U.S. – but for every country on earth.

Second, it confirms much of the work done by the savvy analysts at John S. Herold Inc., who are now estimating when each of the world’s biggest energy companies will reach their peak production. Many reports have estimated when the earth will reach its peak oil production. Others have estimated when individual countries will peak. Herold is the first Wall Street firm to predict when specific companies will hit their peaks. And their predictions agree with Exxon Mobil’s. Herold believes that French oil company Total S.A. will reach its peak production in 2007. Herold expects 2008 to be critical, with Exxon Mobil, ConocoPhillips, BP, Royal Dutch/Shell, and Eni all hitting their peaks. In 2009, Herold expects Chevron to peak. In short, Herold believes that each of the world’s seven largest publicly traded oil companies will begin seeing production declines within the next 48 months.

Third, this decline in production by the supermajors, who have acted as proxies for Washington and the West for decades, means they will have no option but to buy crude from OPEC. Given that scenario: what will prevent OPEC from squeezing the supermajors?

Of course, analysts have been talking about and predicting the end of oil for decades. And Exxon Mobil and Herold aren’t the only energy industry insiders who are looking at where future oil production will happen. But the issue of peak oil is getting lots of attention. Last December, Deutsche Bank issued a report that predicted global oil production (OPEC and non-OPEC) will peak in 2014. Other estimates say the peak won’t happen until 2050. In any case, we will hit the peak sooner or later. What matters most is how the U.S. prepares for that event.

Given the stark reality of a new energy paradigm, and with it, the shift in the balance of power away from Washington and toward Riyadh, what are America’s political leaders doing? Ah, now there’s the rub: they are doing nothing. Actually, they are doing worse that nothing — they are acting like none of these facts matter. Despite the tectonic shift now underway, President George W. Bush and the U.S. Congress are ignoring potential solutions.

They are doing so even though Exxon Mobil has provided them with a report that concludes that “demand growth requires accelerated efficiency gains.” More specifically, the company says that for conserving motor fuel – the key driver of America’s oil imports – hybrid vehicles “represent the best future technology option. It goes on to say that hydrogen-powered vehicles (which are getting billions in funding from the Bush Administration) “do not emerge as a significant factor even in our 2030 outlook.

Despite this, the new energy bill pending in Congress does not require higher fuel efficiency standards for automobiles. Nor does it do much to encourage new hybrid technology. And what about the bully pulpit? Well, it appears that Bush thinks hybrids are a new type of corn. During a speech about energy he gave in March — a 4,600-word, 35-minute-long speech — Bush uttered the words “hybrid vehicle” exactly one time.

It’s truly remarkable that when it comes to thinking about peak oil and what it means for the future of America, Exxon Mobil and Wall Street analysts are taking the lead, while a former oil man from Midland keeps his head up his tailpipe.